Tax restructuring for an international industrial group: from 31% to 22% effective rate

The Challenge

A Spanish industrial group with consolidated revenues of 85 million euros and manufacturing and commercial subsidiaries in Germany, France, Italy, Poland, and Portugal was carrying an effective corporate income tax rate of 31% — well above the sectoral average and the Spanish nominal rate. A preliminary analysis commissioned from BMC identified three primary sources of inefficiency: the absence of formal transfer pricing documentation leading to over-attribution of costs in the Spanish parent, an intercompany financing model generating double taxation on interest, and a corporate structure that utilized none of the favorable tax regimes available in Spain for international holding companies.

The mandate was complex: any restructuring had to be fully compatible with the EU Anti-Tax Avoidance Directive (ATAD I and II) and the OECD’s BEPS standards, avoiding structures that could be characterized as abusive under the increasing coordinated inspections conducted between European tax authorities. Substance requirements in each jurisdiction also had to be respected — no pure paper structures.

Our Approach

The project was structured in four phases over 18 months. The first phase addressed transfer pricing documentation and defense: we prepared a Master File and Local Files for each jurisdiction, redefining transfer prices between the Spanish parent and its subsidiaries on the basis of a functional and comparability analysis. The Transactional Net Margin Method (TNMM) was identified as the most robust approach for the group’s manufacturing and distribution transactions, and all intercompany arrangements were repriced accordingly.

The second phase implemented the ETVE (Entidad de Tenencia de Valores Extranjeros) holding structure. A Spanish holding company was established under the ETVE regime and interposed between the operating parent and the European subsidiaries. This allowed dividends received from EU-resident subsidiaries to be 100% exempt from Spanish corporate tax, and gains on the disposal of qualifying participations to benefit from full participation exemption treatment.

The third phase restructured the intercompany financing: we replaced above-market loan arrangements with centralized treasury management (cash pooling) at a documented arm’s-length interest rate, eliminating the double taxation of interest across jurisdictions and reducing the group’s overall cost of internal capital.

The fourth phase prepared the Country-by-Country Report (CbCR) and aligned all documentation with the transparency standards required by the tax authorities of all five countries in which the group operates, ensuring coherent positioning across jurisdictions.

Results

By the end of the second fiscal year under the new structure, the group’s consolidated effective tax rate had fallen from 31% to 22%, generating annual tax savings of 2.4 million euros. The transfer pricing documentation was reviewed by the Spanish Tax Agency (AEAT) in the context of a limited verification procedure, which concluded with no adjustments or reassessments.

The group now operates with a fully documented structure, capable of responding to any coordinated cross-border inspection, and with an annual CbCR maintenance plan integrated into the closing process. The 18-month payback period on the restructuring cost means the project has delivered sustained value well beyond its initial scope.